Signaling Credit-Worthiness: Land Titles, Banking Practices and Access to Formal Credit in Indonesia

Paul Castañeda Dower and Elizabeth Potamites

No w0155, Working Papers from Center for Economic and Financial Research (CEFIR)

Abstract: Many land titling programs have produced lackluster results in terms of achieving access to credit for the poor. This may re ect insucient empha- sis on local banking practices. Bankers commonly use sophisticated methods other than collateral to ensure repayment. Some methods rely on ex-ante in- formation ows and formal land titles can improve these ows by signaling to the bank important characteristics about borrowers. Using a household survey from Indonesia, we provide evidence that formal land titles do have a positive and significant e ect on access to credit and at least part of this effect is best interpreted as an improvement in ex-ante information ows. This result stands in contrast to the prevailing notion that land titles only function as collateral. Analysts who neglect local banking practices may misinterpret the observed effect of systematic land titling programs on credit access because these programs tend to dampen the signaling value of formal land titles.

Pages: 54 pages
Date: 2010-12
New Economics Papers: this item is included in nep-agr, nep-ban, nep-dev, nep-mfd and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Working Paper: Signaling Credit-Worthiness: Land Titles, Banking Practices and Access to Formal Credit in Indonesia (2010)
Working Paper: Signaling Credit-Worthiness: Land Titles, Banking Practices and Access to Formal Credit in Indonesia (2005)
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